ECB seen to compromise between doves and hawks, discussion to focus on QE bias: Danske Bank

The European Central Bank (ECB) is expected to strike a compromise between the doves, led by President Mario Draghi and board member Praet and the hawks, led by Weidmann and Coeuré, where the ECB removes the QE bias, i.e. 'we stand ready to increase the asset purchase programme in terms of size and/or duration if the outlook turns less favourable', according to the latest report from Danske Bank.

Further, the discussion is expected to focus on the QE bias and not policy rate hikes, even despite Weidmann's call for specifying/quantifying 'well past'. In the ECB's words, 'well past' means data dependent.

Draghi might be seen striking relatively dovish tone by inferring that the removal of the QE bias, should the outlook turn less favorable, is natural given the overall better shape of the economy. Recall that the wording was introduced in December 2016.

Further, the January accounts showed that some members already expressed this view during the previous meeting. 

"As we expect Draghi to strike a relatively dovish tone, amid the removal of QE flexibility, we do not expect a sell-off in Bunds on the back of the ECB meeting and expect the ongoing performance in the periphery to continue. Looking ahead, we like the tactical forward steepener on the 10-30-year EUR swap curve that we proposed last year," the report added.

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